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OECD Urges S. Africa to Reduce Inequality

While lauding South Africa for impressive social progress over the past two decades, a new study has asked the country to build on the successes achieved and reduce inequality further.

The latest OECD Economic Survey of South Africa by the 34-nation Organization for Economic Cooperation and Development says: “South Africa has made impressive social progress over the past two decades, lifting millions of people out of poverty and broadening access to essential services like water, electricity and sanitation. Now is the time to build on these successes to reduce inequality further, create badly needed jobs and ensure stronger, sustainable and more inclusive growth for all,” Jaya Ramachandran wrote for IPS.

The survey, released in Pretoria, the capital of South Africa, by OECD Secretary-General Angel Gurria and South African Finance Minister Nhlanhla Nene, notes that prudent macroeconomic policies have secured the confidence of financial markets.

However, economic growth has been too slow and further measures are needed to overcome infrastructure bottlenecks, strengthen the business environment, improve labor markets and ensure future spending needs can be financed.

Recommendations

“The National Development Plan sets the direction for reforms needed for a strong and inclusive country. Our survey provides targeted recommendations to reach these objectives,” said Gurria.

“Millions of young South Africans are eager to work, and their potential must not be wasted. Their future is precious enough to justify tough reforms and hard spending choices,” he added.

According to the survey, improving infrastructure will be essential for boosting future growth and living standards while, given the large needs, prioritization and cost effectiveness will be crucial.

The OECD noted out that the most immediate priority is to secure additional electricity generation capacity by opening the market to independent producers. Opening electricity and transport will require strong and independent regulators to protect households and firms.

The organization pointed out that improving the regulatory environment would promote entrepreneurship and growth opportunities for small and medium enterprises, which offer the greatest potential for creating jobs and future growth. Reducing barriers to entry, cutting red tape and promoting competition, will be essential.

According to the survey, labor market reforms can raise employment and incomes. Establishing a public employment service as a one-stop shop for job seekers would make it easier for people to find jobs, and for employers to find the right workers.

Mediation, Arbitration

Costly industrial actions have held back the economy without delivering major gains to workers. The OECD suggests an increased role for mediation and arbitration in order to reduce conflict and provide better outcomes for workers and employers.

The survey pleads for “a high degree of public sector efficiency, prioritization of spending and a strong revenue base” with a view to meeting public spending needs for infrastructure and the social safety net.

It argues that the South African tax system “is well designed and well administered, but there is scope to broaden key tax bases by reducing deductions, credits and exemptions. Such tax reform would solidify public finances and make the tax system fairer.”